Oil Crop for McDonald’s Fries Rising Most Since ’08

March 7 (Bloomberg) -- Canadian canola farmers, the world’s biggest growers, are poised to increase output to a record, adding to reserves of the oil used by McDonald’s Corp. to cook 4,000 metric tons of fries globally every day.

Production in the year starting Aug. 1 will surge 16 percent, the most since 2008, to an all-time high of 15.5 million tons as fields recover from drought and infestations of bugs, the government estimates. Futures will tumble 24 percent to C$480 ($466) a ton in Winnipeg by the end of the harvest in November, commodity broker Futures International LLC forecasts.

From Malaysian palm plantations to Brazilian soybean fields, farmers are reaping record oilseed harvests this year, industry researcher Oil World said in a report Feb. 15. U.S. growers probably will produce the biggest soy crop ever as output rebounds after the worst drought since the 1930s, the government said a week later. Expanding stockpiles of cooking oils helped drive global food costs down 12 percent from a record in 2011, United Nations data show.

"We’ll see a glut of canola this year," said Santo Fata, who manages operations and purchasing at Sager Food Products Inc., a Montreal-based vegetable-oil packager founded in 1983. Prices that jumped to a four-year high in September mean "Canadian farmers are going to look at the price of canola. They’re going to want that money."

Trading Partners

Canola gained 7.3 percent to C$632.70 this year on ICE Futures Canada, compared with a 0.2 percent decline in Malaysian palm oil and a 1.1 percent advance in U.S. soybean oil. Fata said canola will trade below C$500 in six months. The MSCI All- Country World Index of equities jumped 5.6 percent since the end of December, as the dollar strengthened 3 percent against a basket of six trading partners. Treasuries lost 0.6 percent, a Bank of America Corp. index shows.

Canadian farmers start planting in May and probably will harvest 1.83 tons per hectare (2.47 acres), 18 percent more than in 2012, Agriculture & Agri-Food Canada said in a Feb. 21 report. That will swell inventories before the harvest in 2014 by 71 percent, the biggest gain in eight years, to 600,000 tons, the government agency forecast.

Traders are anticipating lower prices by September, when harvests begin in provinces including Alberta, Manitoba and top- grower Saskatchewan, which supplied 46 percent of last year’s crop. Futures for November delivery closed yesterday at a C$64.60 discount to the May contract, up from C$43 on Dec. 31.

High Winds

Lower prices would benefit oilseed processors in Europe, Japan and China. The 27-nation European Union, the largest importer of rapeseed and canola, will buy 3 million tons in the year through June, Hamburg-based Oil World estimates. Japan will take 2.4 million tons and China 2.3 million, the data show.

With canola still six months away from harvest, bad weather could disrupt supply. Output fell 8.9 percent to 13.3 million tons in 2012 as yields slumped 19 percent, the biggest drop in a quarter century. Fields across the Canadian Prairies were hurt by rain, drought, bug infestations and high winds. Prices rose as much as 25 percent last year to C$654.60 on Sept. 14, the highest since 2008.

Rain in May delayed planting and forced growers to abandon some areas, while frost hit southern farms. That was followed by a heat wave and then strong winds in September that scattered ripe seeds. Infestations of flea beetles chewed holes in leaves in Alberta and Saskatchewan and cutworms and weevils attacked plants in June and July. Blackleg, a fungal disease, spread in central Alberta, and hailstorms destroyed some fields.

British Columbia

"The damage to canola just turned me off," said Harold Bell, 70, who has been farming for 40 years in Fort St. John, British Columbia. He lost half his crop last year to the dry spell and will plant no canola in 2013. "Wheat is a crop you don’t have to worry too much about. The trouble with canola is that you never know what it’s going to be."

Farmers will plant 1.3 percent fewer acres with canola in 2013 and 6.2 percent more wheat, the government estimates. Bell can sow wheat for about C$100 an acre, or about half the expense of canola. Wheat averaged $7.575 a bushel in Chicago trading last year, the second-highest on record.

Canola has become a Canadian farm staple since it was developed at the University of Manitoba in the 1970s. Food companies wanted a healthier variety of rapeseed oil with fewer saturated fats and acids that lead to high cholesterol and heart disease, according to the Canola Council of Canada.

The Manitoba experiments produced a crop with 7 percent saturated fat, the lowest of all major oilseeds. It was named canola, derived from Canada and "oil, low-acid." It is now a C$15.4 billion ($15 billion) industry that generates a quarter of all farm receipts, more than any crop, government data show.

French Fries

McDonald’s, the largest restaurant chain by sales, uses mostly canola oil in a blend to cook french fries and hash browns, said Barbara Booth, the company’s director for sensory science. McDonald’s shifted to canola in 2008. Booth declined to say how much the company uses.

Combined global production of the seven major oilseeds will rise 5.8 percent to 455.9 million tons in the 2012-2013 marketing season, which ends before the Northern Hemisphere harvests this year, Oil World estimates. The increase includes a 12 percent jump in soybean output and a 1.5 percent gain in canola and rapeseed, with India, South America and the U.S. helping to compensate for last year’s drop in Canada. Soybean- oil production will advance 2.3 percent while palm oil, the most-used cooking oil, will add 6.6 percent.

Larry Bohdanovich, a third-generation farmer in Grandview, Manitoba, isn’t switching. While flooding on his 2,500 acres cut yields by 25 percent last year, he still plans to match last year’s planting with 40 percent canola, 40 percent wheat and the rest oats, buckwheat, rye and barley.

"Farmers are eternal optimists," Bohdanovich, 57, said from the farm his family has owned since 1929. "What happened last year won’t happen this year. We’re going to yield back up to our traditional levels."

--Editors: Steve Stroth, Thomas Galatola

To contact the reporters on this story: Tony C. Dreibus in Chicago at tdreibus@bloomberg.net; Katia Dmitrieva in Toronto at edmitrieva1@bloomberg.net